Xbox cuts again: Undead Labs goes independent, then lays off staff hours later
A second wave of Xbox cuts follows July's 3,200-job restructuring. Undead Labs is out, 268 more roles are gone, and industry layoffs top 14,000 this year.
Stated by the maker, publisher, or platform holder.
Xbox's restructuring isn't finished. This week Undead Labs — the studio behind State of Decay — became an independent company, and within hours announced significant layoffs of its own. The same message from Xbox content chief Matt Booty detailed another 268 job cuts across studios and management.
What's confirmed
This is the second wave. In July, Xbox CEO Asha Sharma announced a reset of the division: 1,600 roles cut immediately and 1,600 more by the end of fiscal 2027, roughly 3,200 jobs in total — about a fifth of the workforce. That round hit id Software hard, with state filings showing 136 of roughly 185 staff let go, and ZeniMax Online Studios lost 213 roles.
The July reset also reshaped the studio lineup. Double Fine and Compulsion Games went back to being independent, Ninja Theory was sold, Undead Labs has now followed, and Arkane's future was reported to be in negotiation.
The strategy behind it
The cuts come with a strategic reversal. At its June showcase Xbox pulled back from putting everything on PlayStation, saying Gears of War: E-Day and Clockwork Revolution would stay exclusive to Xbox and PC. The reset is pitched as making Xbox and its studios financially healthier — fewer studios, fewer people, more focus.
That's the corporate framing. The practical one is that Microsoft is shrinking the games business it spent tens of billions assembling, studio by studio.
The wider picture
This is the fifth straight year of large-scale games layoffs, and 2026 is running worse than expected — partly because the memory shortage is squeezing hardware costs just as companies were hoping for a recovery.
What it means for players
In the short term, not much you'll notice: State of Decay 3 is still coming to Game Pass, and E-Day still launches on 6 October. The longer-term cost is harder to see — fewer studios means fewer games in development, and the ones that go independent now have to fund themselves without Microsoft's money.
The studios leaving Xbox aren't closing, which is the better outcome. But a studio that goes independent and lays people off the same day is a reminder that "independent" often means "on its own."